By Robin Emmott, Ethan Bilby and Samuel Shen
BRUSSELS/SHANGHAI (Reuters) - The European Union and China are moving towards a deal to defuse a conflict over alleged dumping of solar panels in Europe, officials from both sides said on Friday, aiming to head off a damaging trade war in goods from steel to wine.
The European Commission, the EU's executive, accuses China of flooding Europe with billions of euros of cheap solar panels sold at below the cost of production, and has imposed duties that will jump up to punitive levels in August.
Brussels and Beijing have until then to find a solution in their biggest ever trade dispute. Europe's free trade-advocates Britain and Germany want to avoid angering China and risk business with Europe's second largest trading partner.
However, the impact of overcapacity and plunging prices on European solar firms was underscored on Friday as German group Conergy
Officials from Europe and China said more than two weeks of negotiations in Beijing were going well and they aimed to agree a minimum price for Chinese importers above their production costs, although numbers are still fluid.
"We remain highly optimistic about the direction we are moving in," said Sun Guangbin, head of a government-industry association authorized to represent Chinese solar companies in the talks.
The European Commission, which handles trade cases for EU governments, declined to comment, but four officials close to the negotiations told Reuters they were also very positive.
"The architecture of the deal is there," said one person who declined to be named because of the sensitivity of the talks. "The atmosphere in the talks is very business-like, there's a good chance of a deal before the August deadline."
Punitive tariffs have the potential to affect 21 billion euros ($27.1 billion) of imported Chinese solar panels, cells and wafers from manufacturers such as Trina Solar
The EU accounts for about half of China's solar exports, which have already been affected by the euro zone public debt crisis that forced major European countries such as Germany to slash subsidies for renewable power.
DEAL ON THE TABLE
The proposed deal involves an annual quota for Chinese panels that cannot be sold at less than the cost of production in China. Analysts say that was around $0.59 per watt in 2012, but could go down to as low as $0.48 this year. That compares with about $0.65 per watt in Europe.
Under the proposal, panels sold in excess of the quota would be subject to duties, although the final level and the amount are still under discussion. The agreement could set quotas for two to three years, with a review thereafter.
"Figures reported in the media are not the official numbers," said one person involved, noting that the many companies have their own calculations.
German and Chinese media have reported that Beijing has made an offer of a minimum price of 0.50 euros ($0.65) per watt for an annual volume of panel exports of up to 10 gigawatt (GW) of photovoltaic modules.
But that quota may be too generous in European eyes because it is still 80 percent of the EU market. Meanwhile the minimum import price for Chinese panels would probably not go far enough to protect European industry and satisfy EU negotiators.
Chinese solar panel production quadrupled between 2009 and 2011 to more than the entire global demand. EU producers say Chinese companies have captured more than 80 percent of the European market from almost zero a few years ago.
As a result, Chinese-made panels are as much as 45 percent cheaper than those made in Europe, industry executives say.
Europe accounted for half of the global market in 2012, which was worth $77 billion, according to research firm IHS.
Beijing is deciding whether to levy its own duties on imported European solar-grade polysilicon, a raw material used in solar panel production.
In an apparent response to the solar dispute, China also formally began an investigation this month into whether Europe is selling wine in China below cost.
EU Trade Commissioner Karel De Gucht, in China last month for talks, said he hoped any agreement on solar panels would help to resolve the wine dispute. EU officials deny dumping wine in China or subsidizing exports.
($1 = 0.7744 euros)
(Additional reporting by Christoph Steitz in Frankfurt and Charlie Zhu in Hong Kong; Editing by Mark Potter)